02-Aug (USAGOLD) — Gold has turned more defensive, falling back below $1600 after the ECB failed to live up to expectations set by Mario Draghi himself when he said last week that ” the ECB is ready to do whatever it takes.” Draghi’s statement and press conference were rife with couching and qualifiers.
The absence of anything definitive and decisive on the policy front prompted renewed risk aversion, which lifted the dollar some sovereign bonds, while weighing particularly heavy on European stocks. Given what is pretty resoundingly being heralded as a massive disappointment by the ECB, gold is displaying some pretty decent resiliency.
There were two things in particular that the market was looking (hoping?) for from the ECB today: A resumption of the SMP bond buying program, and access to ECB financing for the EFSF/ESM bailout funds. The latter was shot-down pretty definitively, with Draghi saying that “The current design of the ESM does not allow it to be recognized as a suitable counterparty” for ECB loans. While the door was left open for additional bond buying by the ECB, Draghi was pretty adamant that governments must first request aid through the bailout facilities. Of course the likes of Spain and Italy are loathe to do so, as it pretty much confirms the dire straights they are in. They would much prefer that the ECB buy their debt in the secondary market to check the recent rise in rates.
While the markets clearly want ‘a little less talk and a lot more action,’ I think they’ll be quick to forget this week’s disappointments from both the Fed and the ECB and start looking forward to September. Growth remains anemic in the US and Europe. Inflation is already below expectations here and is likely to be below 2% in Europe next year. Arguably that gives both central banks maneuvering room.
Here’s an important point though: Additional quantitative measures are not a prerequisite to higher gold prices. We’ve pointed this out in the past, but it bares repeating periodically; particularly when markets seem to have latched on to the notion that the only catalyst for advancement is further QE. The price of gold was advancing quite nicely, long before QE1, QE2, Twist, BoE asset purchases, SMP and LTRO commenced, although to be fair, the start of the decade long bull market corresponds pretty closely to the BoJ’s initial foray into QE back in 2001.
• US factory orders -0.5% in Jun, well below expectations of +0.3%, vs negative revised +0.5% in May; inventories +0.1%.
• US initial jobless claims 365k in the week ended 28-Jul, in-line with expectations, vs upward revised 357k in previous week.
• ECB left refi rates unchanged at 0.75%, in-line with expectations.
• BoE left base rate unchanged at 0.50%, in-line with expectations. QE steady at £375 bln. No statement.
• UK CIPS Construction PMI improved to 50.9 in Jul, vs 48.2 in Jun.
• Eurozone PPI -0.5% m/m in Jun, vs -0.5% in May; +1.8% y/y, down from +2.3% y/y in May.
• Australia Retail Trade +1.0% in Jun, vs positive revised +0.8% in May.
